Iran will today be declared in violation of a UN resolution calling for a halt to its enrichment of uranium, after last-minute negotiations in Vienna failed to reach a compromise in the nuclear stand-off.

Ari Larijani, Iran's chief nuclear negotiator, emerged from talks with Mohamed ElBaradei, the director general of the International Atomic Energy Agency (IAEA), insisting that Iran had a right to pursue a peaceful nuclear programme and warning against any use of force to stop it.

"Anyone interested in irrational moves would definitely receive an appropriate response," Mr Larijani said. "This can be solved at the chess board or in the boxing ring. We believe if they want to get into the boxing ring, they will have problems on their side too."

The gathering crisis over Iran's nuclear programme, however, will become more intense today with the expected publication of an IAEA report stating that Iran has not complied with UN demands to stop uranium enrichment. Nor has it met the nuclear agency's own demands for greater transparency about its nuclear programme.

IAEA officials said the report was due to be delivered to the UN security council at the same time as the agency's board, but added there was a small possibility its publication could be delayed until tomorrow.

The report is likely to trigger a new security council debate over tightening sanctions on Iran and intensify the debate within the Bush administration over whether to take military action aimed at slowing down Iran's nuclear programme.

The report coincides with the arrival of the carrier USS John C Stennis - backed by a strike group with more than 6,500 sailors and marines and with additional minesweeping ships - in the Gulf yesterday. It joined the carrier USS Dwight D Eisenhower after President Bush ordered the build-up as a show of strength to Iran.

According to diplomatic sources in Vienna, Mr ElBaradei put forward a compromise proposal at yesterday's talks involving a "time out" for both sides - Iran would stop enriching uranium in centrifuges it is building in Natanz, and the US and its allies would drop proceedings against Iran at the security council.

A diplomat at the IAEA said the time out was essentially a restatement of the security council resolution passed in December demanding a halt to enrichment, but couched in terms that might allow the government in Tehran to save face. President Mahmoud Ahmadinejad has vowed never to stop uranium enrichment.

Mr Larijani showed no signs of softening that position yesterday, repeatedly saying that a negotiated solution was possible, while denouncing the UN's December resolution as illegitimate. That resolution imposed limited sanctions on Iran, restricting sales of some technology and curbing the right to travel of Iranian officials involved in the nuclear programme.

The debate now will be over the imposition of tougher sanctions. The US and Britain are in favour of increasing the pressure on Tehran but they are likely to find resistance from Russia and China, which only reluctantly agreed to the December package.

The matter will be discussed in the capitals of an impromptu group of six nations dealing with the issue: Britain, France, Germany, the US, Russia and China. But ultimately it will be negotiated in the security council. If the council is split, the US and Britain may seek to form a coalition outside the UN to apply sanctions.

There is a deep divide among diplomats and nuclear experts on the usefulness of sanctions. Some argue that they will serve only to spur Iran onwards in its march towards becoming a nuclear power. They say the country should be allowed to conduct small scale uranium production.

"This could have been stopped at the R & D [research and development] level, and it would take them a thousand years with that number of centrifuges to make a nuclear weapon," a diplomat specialising in counter-proliferation issues said.

The IAEA believes that Iran faces no major technical hurdles and will be able to construct 3,000 centrifuges in Natanz by the summer, potentially allowing the Islamic republic to produce enough highly enriched uranium to build a bomb. Ultimately, Tehran hopes to build 54,000 centrifuges at the Natanz site.

US, British and allied diplomats counter that allowing Iran to experiment with enrichment will amount to appeasement and will only accelerate its progress towards producing a nuclear warhead.

"Given they have lied for twenty years to the international community about the programme, we're not about to watch them develop the very technology they need to build a nuclear weapon under our noses," a western diplomatic source said.

"This idea [of allowing a small-scale programme] is predicated on the optimistic hope that they'll say: 'Now we've mastered how to run a few centrifuges we're happy just to stick to that'."

What happens next

The report on Iran will be discussed first by the members of a working group on Iran made up of Britain, France, Germany, the US, Russia and China. Within that group, the US and Britain will lead a push for tighter financial and trade sanctions, testing Russia and China's determination to oppose an embargo.

From those talks, Washington and London will try to gauge what kind of sanctions package to put before the UN security council with the aim of winning the broadest support possible.

In parallel, the IAEA 35-nation board of governors will convene on March 5 to discuss Iran's case but any decisions it takes are likely to be superseded by the security council deliberations.

At any point in this drift towards confrontation, however, a face-saving deal could be brokered, like the one suggested by the IAEA director general, Mohamed ElBaradei, in which Iran suspends enrichment at the same time as the US and its allies abandon sanctions. IAEA officials say they are not "overly optimistic".